CMS Issues Proposed Rule Regarding Medicaid Drug Rebate Program

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[MM Curator Summary]: CMS pushes forward with the rule that will survey manufacturers on how they set prices AND penalize ones that incorrectly misclassify drugs in order to pay less rebates.



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In late-May, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule entitled Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program (MDRP). The proposed rule addresses drug misclassification and drug pricing and product data misreporting by pharmaceutical manufacturers. Also important for manufacturers, the rules propose program integrity and program administration changes, including limiting the time within which a manufacturer can initiate an audit of a State Medicaid Program’s drug utilization for purposes of Medicaid rebate obligations; clarifying requirements to accumulate or “stack” price concessions when a manufacturer determines best price; and providing for drug price verification and transparency through data collection.

“With today’s proposed rule, we are advancing unprecedented efforts to increase transparency in prescription drug costs, being good stewards of the Medicaid program, and protecting its financial integrity. This proposed rule will save both states and the federal government money,” Department of Health and Human Services Secretary Xavier Becerra said in a statement.

Some Important Parts of Proposed Rule

CMS is proposing to verify certain drug prices reported by manufacturers through an annual Medicaid Drug Price Verification Survey. According to CMS, verifying drug prices and publishing non-proprietary information about drug prices will increase public transparency for high-cost drugs allowing state Medicaid agencies to negotiate covered outpatient drug (“COD”) prices more effectively with manufacturers.

Only a select number of manufacturers of single-source CODs would be surveyed. CMS would develop a list of high-priced CODs which it estimates would be approximately 160 drug products or 200 national drug codes (“NDCs”). It would then narrow the list to between three and 10 NDCs by excluding CODs for which a manufacturer participates in certain CMS drug pricing programs or pays a significant amount in supplemental rebates to at least 50 percent of states. The manufacturers of the three to 10 NDCs selected would receive a Medicaid Drug Price Verification Survey.

Additionally, the proposed rules also seek to address situations in which manufacturers incorrectly report or misclassify their drugs in the MDRP. Misclassifying a brand-name drug as a generic drug reduces a manufacturer’s Medicaid rebate payments. CMS intends to define the situations in which it would consider a drug misclassified for the purposes of the MDRP, as well as other situations in which a manufacturer is paying rebates to states that are different from the rebates that are supported by the drug data being reported. CMS also would develop a process and timeline to notify manufacturers that it has determined that a misclassification of a COD has occurred, and the process for correcting the misclassification.

The proposed rules would codify a manufacturer’s obligation to pay unpaid rebate amounts to states due to the misclassification(s) and describe actions CMS may take if a manufacturer fails to correct a misclassification, including CMS correcting the misclassification, suspension of the drug and/or its manufacturer from the MDRP, exclusion of the misclassified drug from being eligible for Medicaid reimbursement, and potential civil monetary penalties.

Further, CMS proposes to revise the rules governing the determination of best price, to require that “[c]umulative discounts, rebates or other arrangements must be stacked to generate a final price realized by the manufacturer for a covered outpatient drug, including discounts, rebates or other arrangements provided to different best price eligible entities”. CMS notes, as an example, that, “if a manufacturer provides a discount to a wholesaler, then a rebate to the provider who dispensed the drug unit, and then another rebate to the insurer who covered that drug unit, CMS has concluded that ‘best price’ must include (or ‘stack’) all the discounts and rebates associated with the final price, even if the entity did not buy the drug directly from the manufacturer.”

Among many other proposals, CMS is proposing to require Medicaid managed care plans that cover CODs “to structure any contract with any subcontractor [(e.g., PBMs)] for the delivery or administration of the COD benefit [to] require the subcontractor to report separately the amounts related to the incurred claims,” including amounts related to “reimbursement for . . . CODs, payments for other patient services, and the dispensing or administering providers fees, and subcontractor administrative fees.” CMS believes this information would improve the calculation and reporting of the Medicaid Loss Ratio and would also require PBMs to report to plans on the spread between reimbursement paid to pharmacies and amounts charged to Medicaid managed care plans.